National insurance rise and trade uncertainty ‘difficult in-tray’ for businesses

An increase in employer national insurance contributions (NICs) and uncertainty around trade and tariffs made for a “difficult in-tray” for Scottish businesses at the start of the financial year, a study has found.

The latest edition of the quarterly Scottish Business Monitor, published by the Fraser of Allander Institute at the University of Strathclyde, was based on a survey of 250 Scottish businesses in March.

It found that almost eight out of 10 businesses reported higher payroll costs as a result of a hike in employer NICs from 13.8% to 15%, which came into effect from Sunday April 6.

The survey found many businesses were adapting to the rise through a “combination” of strategies, with 49% saying they were passing the cost on to consumers in the form of higher prices.

Some 47% said they had reduced hiring or scaled back plans to increase employee headcount, while 12% said they had shifted towards “automation and technology” to offset the rise.

The study also found that about 90% of the firms surveyed anticipate higher business costs over the next six months, while 80% said they expect Scottish economic growth to remain “very weak to weak”.

The study team warned that increased prices could push inflation above the Bank of England’s target of 2%, which they noted had also been flagged as a concern by the Bank’s policymakers.

The study also found that business sentiment has also been affected by growing uncertainty around trade and tariffs, with firms indicating that economic and policy uncertainty was more important than credit availability or staff availability.

Sanjam Suri, knowledge exchange fellow at the University of Strathclyde, said: “These results bear out what we expected in the previous edition of our Scottish Business Monitor.

“Increases in employer NICs – both through the higher rate and the reduced threshold – have already been affecting businesses as they prepared for the implementation of the changes in April 2025.

“With four out of five businesses facing higher payroll costs and almost half cutting back on hiring and increasing prices, the effects of higher costs have been making their way through companies’ plans for the coming year.

“Add in the uncertainty around trade, and it makes for a difficult in-tray to manage.

“Economic policy and political uncertainty are uppermost in the minds of Scottish businesses, even more so than borrowing costs or staff availability.

“Next quarter, we will look to gauge how businesses have been adapting to that uncertainty, as well as changing labour market regulations.”